The Pitfalls of Medicaid: Common Mistakes Families Should Avoid

by Kristen Ishihara and Chris Parker with Ishihara & Parker Law Firm PLLC

The attorneys at Ishihara & Parker Law Firm in Longview, Texas, often see families run into the same challenges when applying for Medicaid. While Medicaid can provide vital assistance in covering the cost of long-term care, the application process is complex and filled with potential pitfalls. Missteps can lead to lengthy delays, denials, or unexpected private pay bills that quickly add up to thousands of dollars.

This article highlights some of the most common mistakes families encounter and explains why careful preparation is essential before submitting an application.

Delays and Deadlines

Although Medicaid is required to respond to applications within 45 days, real-world caseloads often result in longer processing times. If additional information is requested, families may have only a day or two to respond once the mail arrives.

Failing to provide correct and complete information in time can cause the application to be denied retroactively, leaving the family responsible for months of uncovered nursing home expenses. Having all necessary documents ready in advance is critical to avoiding these costly setbacks.

Life Insurance Policies

One of the most overlooked issues involves life insurance. Families frequently assume that no policies exist, only to discover them later when reviewing bank records or household documents.

• Term life insurance generally poses no problem since it has no cash value.
• Whole life and variable life insurance policies, however, usually carry a cash surrender value.

This surrender value counts toward Medicaid’s $2,000 asset limit. In some cases, families have been surprised to discover policies worth tens of thousands of dollars that were never disclosed.

Medicaid caseworkers carefully review bank statements, and any deduction labeled “insurance” must be verified with official documentation. Without proof, Medicaid may assume it is a life insurance policy with cash value, which could disqualify the applicant.

Income Verification

Income is another area that requires close attention. Medicaid requires proof of every income source, including Social Security, pensions, and retirement benefits.

What is deposited into the bank account rarely matches the gross amount because of deductions such as Medicare premiums or taxes. Some of these deductions are not allowable under Medicaid’s rules. If the gross income exceeds Medicaid’s limits, the applicant may need a Qualified Income Trust (Miller Trust) in order to qualify.

Failure to provide accurate, verifiable documentation of gross income and deductions often results in delays or denials.

Vehicles and Co-Signed Loans

Vehicle ownership is another frequent stumbling block. Medicaid allows one car to be exempt, but complications arise if:

• The applicant has co-signed on a child or grandchild’s loan.
• A second vehicle was gifted after the death of a spouse.
• Ownership records were not properly updated.

Medicaid independently verifies vehicle ownership. Any car in the applicant’s name—past or present—must be disclosed, often with supporting documents such as bills of sale.

Property Ownership

Real estate and family land often create eligibility problems. Even when a person no longer owns a home, they may still hold an interest in inherited or undivided family property that was never properly probated. Medicaid has the ability to track down such ownership.

In Texas, applicants may keep non-liquid property if it is listed for sale, but it must be disclosed. Failure to do so can delay or deny eligibility. Furthermore, after the applicant’s death, Medicaid may file a Medicaid Estate Recovery Program (MERP) claim against property to recover costs.

Bank Accounts and Past Financial Activity

Large banks and investment institutions cooperate with Medicaid, providing data that can reveal both open and recently closed accounts. Even accounts closed within the past five years may appear during the review process.

If accounts are not disclosed in the initial application, Medicaid may issue a last-minute request for information that is difficult or impossible to respond to in time. Full disclosure at the outset is always the safest approach.

The Importance of Professional Guidance

Many families mistakenly rely on “common sense” when disclosing assets or financial activity, only to discover that Medicaid’s rules are far stricter. For example, a joint account with a parent may seem like the child’s money, but if the parent’s name and Social Security number are attached, Medicaid legally treats it as the parent’s account.

Submitting incomplete or inaccurate information—even unintentionally—can result in costly delays or outright denial of benefits. Experienced legal guidance helps families avoid these mistakes, ensures compliance with Medicaid’s rules, and protects against unexpected financial hardship.

Conclusion

Applying for Medicaid requires more than filling out forms—it demands preparation, documentation, and sometimes strategic planning. Common pitfalls include unreported life insurance policies, income discrepancies, vehicle ownership issues, undisclosed property, and overlooked bank accounts.

By understanding these challenges in advance and seeking qualified legal assistance, families can avoid costly mistakes and ensure their loved ones receive the care they need without unnecessary financial strain.

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